Walgreen 4Q Earnings Drop 1.6%, But Co Beats Views

Walgreen Co. (WAG) posted a 1.6% drop in fiscal fourth-quarter profit as sluggish front-end sales offset growth in revenue and prescription sales.

Shares rose 3% to $35.25 in premarket trading as earnings topped analysts' expectations. The stock through Monday's close is up 39% this year as the nation's largest drugstore chain is working to bounce back from retail weakness as sales of non-pharmacy items lag improved sales in its pharmacy unit. The troubles have been seen at rivals as well.

Meanwhile, Walgreen has scaled back expansion, is rolling out a more streamlined store format and will supply prescription drugs directly to Caterpillar Inc. (CAT) workers and retirees starting next year. Meanwhile, drugstores are expected to benefit from a cold-weather return of the H1N1 virus in the U.S.

For the period ended Aug. 31, Walgreen's profit fell to $436 million, or 44 cents a share, from $443 million, or 45 cents a share, a year earlier. The results included gains of 4 cents and 5 cents, respectively.

Net sales rose 7.6% to a company-record $15.7 billion, as same-store sales increased 2.4%. They fell 1.4% at the front end and climbed 4.5% at the pharmacy.

Analysts polled by Thomson Reuters were expecting earnings, excluding items, of 39 cents a share on revenue of $15.68 billion.

Gross margin rose to 27.7% from 27.6% on stronger retail pharmacy margins, helped by increased generic-drug sales. Non-retail operations and added inventory costs, however, held down the margin rise. Walgreen also manages workplace health-and-wellness centers.

Prescription sales, which accounted for two-thirds of sales, increased 9% overall.

Drugstore chains' promotion of discount drug programs have helped reduce prices and led to greater use of generic drugs. Walgreen's prescription sales growth comes on the heels of rival CVS Caremark Corp.'s (CVS) statement in August that it saw no recession in its prescription-drug business.

Walgreen said it opened 149 new drugstores during the quarter, compared with 162 in the third quarter and 199 a year ago. It said it expects organic store growth of 4.5% and 5% in the new fiscal year, and 2.5% to 3% thereafter.

-By Mike Barris, Dow Jones Newswires; 212-416-2330; [e-mail]